Working RE Magazine - Issue 62

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Real Est ate A pprai s ers

Summer 2023, Volume 62

FASTER AND CHEAPER: Fannie Says Appraisals No Longer the Default Appraisal Bias? The Inconvenient Truth of a Flawed Report Grassroots Lobbying 101: How Appraisers Can Effect Change Appraiser Countersues Black Plaintiffs Who Alleged Discrimination

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From the Publisher Readers Respond

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Faster and Cheaper: Appraisals No Longer the Default Isaac Peck, Publisher

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The Inconvenient Truth of a Flawed Report Isaac Peck, Publisher

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Grassroots Lobbying 101: How Appraisers Can Effect Change Isaac Peck, Publisher

Risks and Benefits of Hybrid and Desktop Appraisals Jo A. Traut, McKissock Learning

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Appraiser Countersues Black Plaintiffs Who Alleged Discrimination Isaac Peck, Publisher

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Non-Lending Appraisal Work: Interview with Josh Walitt Kendra Budd, Editor

Concessions, Kickbacks, and the Appraiser’s Nightmare Richard Hagar, SRA

ChatGPT: Valuable Tool or a Replacement for Appraisers?

Dustin Harris, The Appraiser Coach

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Women in the Appraisal Industry: Interview with Kathy Walsh Kendra Budd, Editor

CHECK OUT: OREP’S LIVE CHAT at OREP.org. 5am-5pm PST, Monday-Friday.

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Industry News Mission

Publisher

Working RE is published to help readers build their businesses, reduce their risk of liability and stay informed on important technology and industry issues.

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From the Publisher

Doing What Others Won’t Do

by Isaac Peck, Publisher

I’ve been traveling a lot—support-

ing grassroots appraiser organizations like the South Carolina Professional Appraisers Coalition, meeting bootson-the-ground appraisers, and trying to help appraisers stay out of trouble by teaching on appraiser liability and risk management.

Being on the road (for me) is always hard, but it’s been a special privilege to spend time with appraisers across the country, break bread, and talk about the issues they’re facing in today’s market.

I’ve been touched by the stories I’ve heard along the way. Stories like Paul Ryll’s, a former United States Marine who, in the face of today’s market challenges, just launched a second appraisal firm (Reynolds and Ryll, LLC) focusing on commercial valuations, valuations for tax and government purposes, and consulting.

Stories like Byron Miller’s, a residential appraiser who saw a need for legislation that protects and supports appraisers in his home state of Minnesota, and subsequently led a small group of appraisers to get six (yes SIX) laws passed in his state legislature over the last eight years (See Grassroots Lobbying 101: How Appraisers Can Effect Change, pg. 14.)

Or Kathy Walsh, who went back to school in her 50s, became a Certified appraiser, and has built a very successful woman-owned and operated multi-appraiser firm in Sammamish, Washington—where she’s been able to train other women and bring them into the profession as well. (See Women in the Appraisal Industry: Interview with 4 Working RE Summer 2023

Kathy Walsh, pg. 36.)

One of the things I’ve been reflecting on—the common thread in these stories and something I’ve seen surface repeatedly in my own journey—is that the individuals who succeed despite the odds, whether in growing their businesses or in passing essential legislation, are the ones who are willing to do what their peers (or competitors) won’t do. To take those extra classes, do that extra marketing, train and invest in others, or, like in Miller’s case, to call on his state representatives, meet them in their offices, and attend hearings at his state Capitol.

We try to take the same approach here at Working RE magazine and OREP Insurance—to be willing to do what our competitors will not do. For me, that means traveling to 25 to 30 cities this year, sponsoring smaller appraiser associations, speaking with appraisers across the country and telling their stories, adding new benefits to support OREP’s Members (like our new Limiting Liability Disclaimers eBook, see pg. 5), and personally calling our insureds and answering their questions—making it

clear that our commitment to outstanding service is not just a tagline.

I’m not sure what this looks like in your business—whether it’s developing new skills, branching out into commercial or non-lender work, getting a professional designation, giving your clients quick turn-times and excellent customer service, providing higher-quality reports, or building your network with attorneys or real estate professionals.

But from one small business owner to another, I encourage you to go that extra mile. The appraisal profession is definitely facing its share of challenges, but there are still opportunities for us to grow.

I hope this issue keeps you informed and gives you some ideas and practical actions that can help your business.

If you ever need assistance with your appraiser E&O insurance, please visit us at OREP.org (it takes less than five minutes to get a quote online!).

Lastly, if there’s anything I can do personally to be of service, please reach out to me at isaac@orep.org. To your success! WRE

Readers Respond Black Plaintiffs Who Alleged Discrimination I’d like to see the second appraisal.

Based on the information provided (two sales on Northern in the $465500k range) it seems like the original appraisal was pretty accurate. So what comps did the second appraiser use?

What were his adjustments? I had a complaint filed against me. The individual had a copy of an appraisal of his neighbor’s house that was significantly higher than my appraisal. They never provided that appraisal to me, just the comps in the other report. The comps were ALL model houses (some selling furnished), some with extensive updating, some with pools, spas, BBQs, etc. My subject had standard builder upgrades and a dirt backyard.

I had done four other appraisals over the past 18 months in the community and my appraisal was in-line with those

appraisals and the appreciation rate in the community. Needless to say, the complaint went nowhere. But it is certainly distressing to be accused of something you didn’t do. Good luck to Mr. Lanham. — Rob

 Surviving the Slowdown Your article was well done, however what about the trainees? With this slowdown how does a trainee find supervisors when there is no work? I personally have been told by 12 local appraisers that I have to wait until the market turns around to finish my hours.

—Jannine Allen Does anyone have any statistics or at least a good estimate of the percentage of appraisals that are done each year for non-lender work? I keep hearing veteran appraisers say they’re staying busy with non-lender appraisals, but

I’m skeptical that most appraisers can suddenly start picking up regular work for divorce and estates. —Austin Franke

 Killed by Carbon Monoxide: Appraiser Blamed I agree with “Maya,” in the Working RE magazine, Winter/Spring 2023. I too, was disturbed when an appraiser was found to be at fault when a person was killed by Carbon Monoxide poisoning due to a malfunctioning CO detector.

It is the responsibility of the homeowners/sellers to maintain their smoke detectors/CO detectors, not appraisers or any other people who visit the homes. What are we to do, move into the homes we appraise and maintain a 24/7 vigil on the detectors? No! Once we leave the premises, the responsibility is out of our hands. PERIOD! Thank you. —Owen WRE

Summer 2023 Working RE

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Faster and Cheaper: Fannie Says Appraisals No Longer the Default

by Isaac Peck, Publisher

The appraiser profession has been

Executives at both Fannie and Freddie have pointed out that during the crazyvolume times of 2020 and 2021, appraisers were not actually able to keep up with the transactions that were taking place in the market.

abuzz with alarmed discussions since Fannie Mae’s now-historic update to its Selling Guide on March 1, 2023 (Announcement SEL-2023-02).

In it, Fannie boldly proclaims that they are “moving away from implying that an appraisal is a default requirement.” Fannie’s unique choice of words —which one assumes was no accident— has attracted special attention.

The policy update actually mirrors the existing practices of Freddie Mac. Indeed, nearly a year prior to Fannie’s announcement, Freddie introduced its Automated Collateral Evaluation and Property Data Report (ACE + PDR) structure wherein a segment of Freddie’s loans would receive an appraisal waiver, and another segment would receive an appraisal waiver subject to a Property Data Report—which would not be required to be collected by a licensed appraiser.

Worth noting is that both Government Sponsored Entities (GSEs) have been working to “rebrand” away from the simple-for-the-public-to-understand term “appraisal waiver.” Freddie has opted to call its appraisal waiver an “ACE” and, as part of its March 2023 update, Fannie has coined the term “Valuation Acceptance” to describe its appraisal waiver.

Semantics aside, an astute observer of GSE appraisal policy might be compelled to ask: Is Fannie’s update really a significant change?

Isaac Peck is the Publisher of Working RE magazine and the President of OREP, a leading provider of E&O insurance for real estate professionals. OREP serves over 10,000 appraisers with comprehensive E&O coverage, competitive rates, and 14 hours of free CE for OREP Members (CE not approved in IL, MN, GA). Visit www.OREP.org to learn more. Reach Isaac at isaac@orep.org or (888) 347-5273. CA License #4116465.

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After all, appraisal “alternatives” are nothing new. During the height of the COVID-19 market pandemonium in 2021, the total share of GSE appraisal waivers reached 49% of all GSE transactions. The GSEs have been moving towards appraisal waivers and property data collection options for several years now.

Nevertheless, Fannie’s word selection about dethroning appraisals as the “default” has sparked a broader discussion about the GSEs’ policies and alarmed active appraisers, national appraisal associations, and other stakeholders within the real estate community.

Fannie’s Appraisal Alternatives The specifics about Fannie’s new valuation approach are fairly straightforward. Here are the valuation options in Fannie’s new framework: • Valuation Acceptance (Appraisal Waivers): This option will be considered on principal and secondary residence purchase transactions with a Loan to Value (LTV) of 80% or less, primary and secondary residence limited cash-out refinances with an LTV of 90% or less, investment properties with an LTV of 75% or less, and principal residence cash-out refinances of 70% or less, among other criteria.

• Valuation Acceptance + Property Data: This is a new option Fannie is introducing and as its own version of Freddie’s ACE + PDR product. Under this option, Fannie will offer an appraisal waiver subject to “property data collection by a third party who conducts interior and exterior data collection on the subject property.”

• Hybrid Appraisal: This solution would only come into play where Value Acceptance + Property Data “was initially started, but changes in loan characteristics result in the transaction not being eligible for that option.” In other words, the “property data” would be forwarded to a licensed appraiser, who would perform the valuation analysis based on the information provided by the third-party data collector.

In a nod to appraisers, Fannie writes that for Value Acceptance to be offered: “generally a prior appraisal must be found for the subject property…in some cases, the prior appraisal may not be acceptable. For example, if a CU Overvaluation Flag was issued on the prior appraisal or the appraisal could not be scored, that prior appraisal will not be used.”

AI and ASA Speak Out In response to Fannie’s update, both the Appraisal Institute (AI) and the American Society of Appraisers (ASA) spoke out—expressing serious concerns about the harmful consequences this will have on the appraiser profession and the consumer public.

In a letter to Sandra Thompson, Director of the Federal Housing Finance Agency (Fannie’s regulator), AI President Craig Steinley writes that of particular concern is “the encouraged development of an alternative workforce of property data collectors that may negatively impact aspiring appraisers’ ability to enter the appraisal profession.”

To combat this, AI proposes that appraiser trainees might be able to use hours spent doing property data collection to qualify for appraisal experience credit.

Addressing Fannie’s choice of words, Steinley writes that “many appraisers are concerned by the statement...when one considers the possibility of increased use of appraisal waivers in concert with allowance for

‘hybrid’ appraisals or desktop appraisal assignments, reasonable people can conclude that attempts may be made to minimize the scope of services of appraisers. This has profound potential impacts on safety and soundness of the mortgage market, particularly considering the significant market and economic headwinds of the day.”

For ASA’s statement, John Russell, JD, Strategic Partnership Officer at ASA, did not mince words. Russell makes a series of strongly worded arguments against Fannie’s direction, which include: • Models Fail: Models lag adverse changes to the market and Fannie’s reliance on data in place of “learned human interaction informing the process” exposes it to significant downside risk. “Remember that in the last housing crash, an 85% LTV loan became, generally, a 115% LTV loan virtually overnight,” Russell reminds us.

• Taxpayers Will Hold the Bag: Fannie is offering Representations and Warranty Relief for lenders on all Valuation Acceptance transactions, but there is no “rep and warranty” relief for Fannie itself. “Once again the taxpayer will be left holding the bag for Fannie’s injection of unnecessary risk into the housing finance market, all based on the hedge that models and poorly trained data collectors can replicate the longstanding work of appraisers,” Russell argues.

• Consumer Protection: Without appraisers involved in the homebuying process, Russell sees consumers being completely without protection. “Agents and brokers have a direct financial incentive on seeing deals consummated for the highest possible selling price thanks to percentagebased commissions. Home inspectors are inconsistent at best, and more buyers are waiving inspections…and mortgage originators want velocity.

The only safeguard left to homebuyers was (and is) an appraiser

looking at a property from an objective perspective and expressing a professional opinion as to the home’s value as collateral to the mortgage being underwritten. No other party has reason or incentive to provide objective information to the homebuyer,” Russell protests.

• Fannie is Capitalizing on Public Opinion: It feels almost too convenient, Russell writes, “to see this pivotal change from Fannie come at a moment where the public’s opinion of appraisers is near the low water mark. By obviating the appraisal from the mortgage process entirely, not only are home buyers left unprotected and mortgage markets injected with new and unknown risks, but the efforts to address inequalities in how homes are valued and to diversify the profession are cast aside before these labors bear fruit. It is disingenuous at best for federal agencies, such as Fannie’s conservator FHFA, to ask for change and then not allow change to happen.”

To read the full statements released

by AI and ASA, visit WorkingRE.com/ FannieStatements.

Fannie’s Perspective Since Fannie’s announcement, Lyle Radke, Senior Director of Collateral Policy at Fannie Mae, has been on something of a press tour—taking questions from appraisers on webinars and attending appraiser conferences to help assuage appraisers’ concerns and communicate Fannie’s position.

On the Appraiser eLearning YouTube channel, host Bryan Reynolds invited both Lyle Radke and Hamp Thomas, an appraiser and educator, to discuss Fannie’s policy changes on a webinar. (Visit YouTube.com/@ AppraisereLearning to subscribe!)

One of the big questions on the minds of appraisers is: how much business are appraisers going to lose to page 8 8

Summer 2023 Working RE

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property data collections?

Addressing this, Radke reports that based on 2022 data the answer is somewhere between two and four percent.

“We don’t target specific percentages.

What we’re doing is saying here’s the eligibility box. If you’re within that box, then you’re eligible. If we back test this against 2022 data, we find the percentage that is switching from appraisal to property data collection is somewhere in the two, three or four percent range.

It’s hard to know for sure because the economy and interest rate environment is always evolving and that impacts mortgage lending,” says Radke.

Throughout the webinar, Hamp Thomas repeatedly argued about the seriousness of the direction Fannie is taking, remarking that maybe Fannie is only cutting three or four percent of appraisals now, but further cuts are imminent. “Ultimately this will be the demise of the appraiser profession. We are giving the GSEs the power to eliminate an industry using our own data.

It is just wrong and it is going to get worse soon,” Thomas says.

In response, Radke maintains that Fannie needs appraisers and reiterated that there is a future for appraisers in mortgage lending transactions. “We are not trying to get rid of appraisers. Hamp [Thomas] himself pointed out we are using appraisal data in our models. If we get rid of appraisers, where would we get the data for our models? We won’t have the data, our models won’t work, and we’ll have to go get appraisals. So, you have to have a steady input of appraisals in order to drive the whole process. The appraisal is the foundation of the process. We’re using appraisals to critique other appraisals. And appraisal data to critique others appraisal performance.

We’re taking a scientific approach to analyze the results. In some cases, the appraisal is the best option. In other cases, the appraisal is not adding benefit. We’ve worked on this project for 8 Working RE Summer 2023

many years,” Radke reports.

Fannie has also offered appraisal waivers for over 20 years, Radke points out. “A little-known fact is that loans with appraisal waivers outperformed loans with appraisals on loss severity in the great recession. How can that be? We didn’t even know what the property looked like. Even normalizing for credit risk, they still outperformed.

One hypothesis is that people who qualify for waivers have conservative, or low expectations, around their credit and appraisal and home value. They’re not pushing the boundaries. Because of that, they’re really safe risk cases. On the other hand, people who don’t qualify for the waiver, their value expectations are higher than what we think are reasonable. They might be more aggressive in their personal behavior and less qualified as a credit risk. This doesn’t always show up in your FICO. It’s a really interesting finding. We find waivers identify a really low risk segment of borrowers who have modest expectations,” says Radke.

Reynolds asked both Thomas and Radke if they had a child who was interested in becoming an appraiser, what advice would they offer. Thomas said he would highly encourage a family member to become an appraiser, but would have them “do other things and not focus solely on mortgage finance transactions.”

Radke disagreed, arguing that appraisers are still needed on mortgage finance transactions. “From where I sit mortgage finance transactions is a great business. There is a huge volume there.

You don’t necessarily find that volume in other lines of business. [To appraisers who say “this is the end”], I don’t believe that to be true,” Radke says.

With respect to property data collections, Radke acknowledged that they generally cost less than a full appraisal, but added: “The appraisal skillset is very transferable to performing property data collection, which also

provides opportunities for appraisers to expand their array of services. And our test-and-learn activities included appraisers among the workforces performing property data collection. In addition, appraiser trainees are eligible to conduct property data collection, providing them with a professional growth opportunity.”

Realtor® Takes a Stand Appraisers aren’t the only ones concerned about Fannie’s new policy. In April 2023, Leigh Brown, President of the North Carolina Association of Realtors (NCAR), published a video to her YouTube channel outlining her serious concerns about Fannie’s program.

(Visit WorkingRE.com/RealtorSpeaksOut to watch the complete video.)

In her video, Brown argues that professional service providers that are going into people’s homes should have some regulatory oversight. “For the princely sum of $50, these [property data collectors] will do an inspection without a license. No license means there’s not a regulatory body that’s going to oversee them and look out for consumer protection. They are going into somebody’s house—their sanctuary—where their babies lay their heads down to sleep at night. There should be some protection over who is coming in.

As a consumer, I don’t want somebody like that in my house,” Brown says.

Outside of safety concerns, Brown questions why the GSEs are seeking to supplant appraisers. “These data collectors don’t have the expertise. What we do in real estate is so big—the volume of the financial investment and what it means to people. This is, for most people, their financial stability. Do we want an unlicensed, unregulated, probably poorly trained data collector going into [our clients’] houses? As Realtors® and professionals, we have to ask all these questions. Why in the world are our institutions trying to get rid of our Certified Appraisers?” asks Brown.

As the President of NCAR, Brown warns her fellow Realtors® to not allow unlicensed property data collectors on their transactions. “My pocket card that I have from the NC Real Estate Commission has granted me the public trust. I want the people that I represent to have the best possible outcome which means an independent, Certified appraiser verifying their numbers. Even if my clients are paying cash, I still recommend a Certified appraiser. It is my job as a fiduciary. My clients sign an agency agreement, meaning that I’m advocating for them every step along the way. I have an obligation to not take a shortcut of an unlicensed, unregulated data collector making $50 looking at a house with no knowledge, no expertise, and not bound by a Code of Ethics,” argues Brown.

Lastly, Brown urges her Realtor® peers to not engage in property data collection. “If you are a Realtor®, do not do this data collector stuff. We’re still waiting on guidance, but it looks like you could possibly be outside your expertise operating like this, and that is a violation of your Code of Ethics. My recommendation is to do your Realtor® job and let Certified appraisers do Certified appraiser jobs. If you are a member of the consumer public and buying a house, ask for an appraiser. These are highly

trained, skilled individuals,” Brown says.

Felon Data Collector?

To Brown’s point about allowing unlicensed people into one’s home, James Heaslet, Chief Appraiser at the Department of Veteran Affairs, presented a slide deck at VA’s Loan Guarantee Conference in early May 2023 that reported on the engagement of a property data collector who was a felon.

Heaslet’s slides explain that an individual was recently engaged by one of the largest AMCs in the country (one of six approved by Fannie) as a videographer and “data collection specialist.” The problem?

The individual was facing felony charges and was shortly convicted of staging an armed robbery of a van carrying more than 1.2 million dollars.

Heaslet’s slide deck indicated that the bifurcated appraisal process has risks that Veterans should not take on. In lieu of property data collectors, the VA envisions a process “where the VA appraiser can utilize another appraiser or trainee to inspect and appraise the property, write the report, the appraiser/trainee and supervisory appraiser must sign the report.” This will ultimately “reduce overall appraisal turn times while also encouraging more individuals to join the appraisal profession,” Heaslet argues.

Conclusion Fannie has been upfront about its interest in developing appraisal “alternatives.”

However, the timing of Fannie’s update could not have come at a worse time.

Appraisers are currently in the midst of historically low transaction volume, with February 2023 clocking in as the slowest transactional month on record—less than 95,000 appraisals being ordered between both GSEs according to the American Enterprise Institute.

However, Fannie insists that it is looking to the future. With respect to volume, executives at both Fannie and Freddie have pointed out that during the crazy-volume times of 2020 and 2021, appraisers were not actually able to keep up with the transactions that were taking place in the market.

It is rumored that FHFA approached both GSEs and asked them to “find solutions” to the “appraisal bottleneck.”

Both Fannie and Freddie insist that appraisers remain an integral part of the valuation landscape and demand for appraisal services will continue into the future. But there definitely appears to be truth in Fannie’s unpopular choice of words. When it comes to low risk, low LTV, cookie-cutter property mortgage transactions, appraisals are no longer the only game in town—or the default— according to Fannie. WRE

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9

Appraisal Bias? The Inconvenient Truth of a Flawed Report

by Isaac Peck, Publisher

You can’t always judge a book by its

The NCRC’s report and experiment is a great example of how selectively presenting data and filtering statistics can misrepresent the reality of a situation.

10 Working RE Summer 2023

cover, or a report by its summary results.

At least not without some scrutiny.

In the summer of 2022, in Baltimore, Maryland, the National Community Reinvestment Coalition (NCRC) conducted a “mystery shopper experiment” with the item being a residential appraisal.

It concluded that appraisers are racially biased. Here’s what a lazy analysis failed to find.

The NCRC’s experiment had biracial couples engage local appraisers (who knew nothing of the experiment) to perform an appraisal of their home as a way of testing how appraisers would value the home based on race. In half the tests, the Black spouse answered the door and acted as if they needed an appraisal for a divorce or loan. The other half had the white spouse answer the door. In addition to a Black or white spouse, each house was “blackwashed” or “whitewashed” (as the NCRC puts it), meaning family photographs and cultural objects were removed to make the home racially neutral. Twelve fully-completed “matched pair” appraisal reports (from three homes) were ordered and delivered as part of the experiment.

The results from NCRC’s experiment were revealed in an October 2022 report titled Mystery-Shopper Testing In Home Appraisals Exposes Racial Bias Undermining Black Wealth, which has been widely cited and reported on by both local and national news outlets.

The conclusions the NCRC draws (https://bit.ly/ncrcmystery) have been shared by the media and are obvious in the title: home appraisals are racially biased and undermine Black wealth.

Specifically, one of the key take-

aways of the data, NCRC writes, is that appraisers assigned higher values to homes when they believe the owners are white ($7,000 higher per property). The report states that the two “most glaring” examples are 1) a home valued 12.9 percent higher when the white spouse presented ($40,000 variance), and 2) a home valued 9.1% higher with a white spouse ($46,000 variance).

What the Report Doesn’t Say One key data point that the NCRC does not disclose is that the two most glaring examples of racial bias were performed by the same appraiser. We might call this appraiser an “outlier,” which in statistics is defined as “an observation that lies an abnormal distance from other values in a random sample from a population.”

In fact, if we remove this one appraiser as a data point, the data flips the other way! The results of NCRC’s experiment actually show that appraisers (on average) favor Black homeowners and assign their homes higher values.

But perhaps more glaring is that the one “outlier” appraiser, who was so pivotal in skewing the data, is Black!

[Name Redacted], the appraiser who “undervalued” the first house in the NCRC’s “most glaring” example, and who “overvalued” the second house in the NCRC’s other key example, is a Black appraiser.

Blind to Data Whether the NCRC failed to dig deeper or ignored what they found, this reveals a flawed conclusion. Here too, the NCRC filed a discrimination complaint with the Department of Housing page 12 8

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and Urban Development (HUD) against [Name Redacted] as a result of this experiment.

The HUD complaint against the Black appraiser reads: “There is a significant disparity between how Respondent-valued a home that was presented as Black-owned, and how Respondent valued a home that was presented as White-owned on multiple occasions. This disparity constitutes a significant difference in treatment based on race.” (https://bit.ly/HUD903form.)

HUD has not responded to WRE as of this writing. The Black appraiser in question performed a total of two appraisals as part of the experiment.

Service Issues Besides the NCRC’s data analysis issues explained above, the report also indicates that Black homeowners experienced “unprofessional treatment from appraisers,” while white homeowners did not. “One appraiser refused to complete an assignment for a Black homeowner. Another took 11 weeks to complete a report for a Black homeowner,” the NCRC writes.

Here too, the NCRC filed a discrimination complaint with HUD against the appraiser who took 11 weeks to complete a report for a Black homeowner (actor).

When Working RE investigated, we learned that the slow appraiser called out in the report had a pretty good reason: he had experienced a medical emergency—which affected all of his reports during this time frame.

The appraiser also reported that the homeowner/actor (and the NCRC) never asked him why the report was late before filing a HUD complaint against him.

It is also worth noting that this appraiser who turned in the report late actually valued the Black (actor) homeowner’s home at a higher value than his appraiser peers. This is another inconvenient truth the NCRC fails to include in their report.

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As to the appraiser who refused to complete the report, they may have seen something fishy and decided to steer clear. Not a bad idea, given that the NCRC filed discrimination complaints against two out of six appraisers who participated in the study (a 33 percent “hit rate,” according to WRE’s simple math).

Total Variance Setting aside the fact that the two most egregious examples of racial bias were performed by the same (Black) appraiser and that with his data removed from the analysis the results actually show favoritism toward Black homeowners, the total variance of the basic data NCRC collected is worth looking at.

First, the NCRC reports that out of its twelve matched paired appraisals (six tests, two appraisals per test), the total of the valuations provided to the white homeowners is $2,418,000 and the total of the valuations provided to the Black homeowners is $2,377,000.

This is a 1.7 percent variance in valuations of the same homes, which is within the historic 5 percent variance range for appraisals. Regardless of the facts, NCRC writes that the results are indicative of “the severity of racial bias” within the profession and supports their argument that “sweeping and aggressive action” is needed from policymakers and the industry itself.

Conclusion The NCRC’s report and experiment is a great example of how selectively presenting data and filtering statistics can misrepresent the reality of a situation.

The fact that NCRC has “more than 20 years of experience executing mystery shopper testing in housing and lending markets to probe for discriminatory business practices,” and has failed to disclose that both of the “most

glaring” appraisal examples of racial bias in their experiment were performed by one appraiser—an outlier—and that this appraiser was in fact a Black appraiser, raises very serious questions about the NCRC’s credibility.

The NCRC, however, considers the experiment a glowing success. In an online webinar, Director of Fair Housing at NCRC, Tracy McCracken, touted this as the first experiment of its kind and said its testing methodology was a promising tool to root out “racist” appraisers.

In the same webinar, Jake Lilien, NCRC’s Counsel for Fair Housing Enforcement, recommended additional testing specifically in Alabama, Georgia, Louisiana, Mississippi, North Carolina, and South Carolina.

“There are certain things I don’t want to say publicly about how we did the testing, because who is to say we’re done testing appraisers. Other groups may try to use our same practices and we don’t want appraisers to know what these practices are. So, I can’t share specific details about how we contacted appraisers, what excuses we gave, etc. But if you work for a Fair Housing organization, reach out to me and I’d love to talk to you,” Lilien said.

Their methodology is so good, they’re eager to share it.

In March 2023, HUD issued over $40 million in grants dedicated to “testing” for fair housing complaints, with a specific note about testing for “appraisal bias.” NCRC received $425,000.

Stay safe out there! WRE

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Grassroots Lobbying 101: How Appraisers Can Effect Change

by Isaac Peck, Publisher

The appraisal profession is relatively

Advocacy is essential for the survival of the appraisal profession. Most people have no clue how our legislative process works.

Even though it’s not perfect, this is the best system we have in the world.

small and its political influence is modest—especially when compared with organizations like the National Association of Realtors (NAR) and the National Association of Home Builders (NAHB).

As a result, many appraisers feel powerless to effect change or exert influence within their regulatory system as well as in their local (and national) legislatures.

What could one appraiser, or even a handful of appraisers, do to change anything, anyway? Right?

The answer is likely more than you think.

Byron Miller, SRA, AI-RRS, ASA, RAA, MSSE and Chair of the Government Relations Sub-Committee for the North Star Chapter of the Appraisal Institute (NSAI-GRC), is one such appraiser. Alongside a handful of other passionate boots-on-the-ground real estate appraisers, Miller has succeeded in changing the regulatory environment for appraisers—in his home state of Minnesota.

In fact, nearly every single year, for the last seven years (2016 through 2022, excluding the pandemic year of 2020), Miller and the NSAI-GRC team passed a law protecting appraisers and improving the laws governing real estate professionals.

Laws Passed A summary of the NSAI-GRC team’s accomplishments include: 1. 2016 Session: HF3901/SF3556— This legislation corrected several loopholes in the AMC law already on the books, amended the Customary and Reasonable fee provision of the AMC law; and 14 Working RE Summer 2023

clarified that no fees should be charged to the appraiser for a state board investigation if there was a finding of “no violation” against the appraiser. Miller got the idea for this bill after one of the members of his Chapter was investigated by the MN Department of Commerce (MN-DOC), found to be not in violation, and then was sent a bill for by the state for their investigation time!

2. 2017 Session: HF593/SF366—This legislation created a six-year statute of limitations for civil actions against appraisers (except in cases involving fraud or intentional misrepresentation); modified appraiser background check requirements to bring them in line with Appraisal Qualifications Board (AQB) standards, and changed the regulatory process involving appraiser board complaints so that mere allegations of non-compliance with appraiser licensing laws would not be considered a formal complaint unless a disciplinary action results from it.

3. 2018 Session: HF2829/SF2991— This legislation created the Minnesota Real Estate Appraisal Advisory Board (REAAB), a sevenperson board appointed by the MN-DOC commissioner whose mission is to advise and provide best practices regarding real estate appraisers’ licensing, public disciplinary matters, continuing education, and industry-related trends.

4. 2019 Session: HF2133/SF2016— This legislation provided precise definitions for Appraisal Review, simplified the temporary license

process for out-of-state appraisers, and aligned the state licensing requirements with AQB criteria.

5. 2021 Session: HF1768/SF785— This legislation allows appraisers to perform evaluation products that are exempt from USPAP, allows appraisers to take virtual CE equivalent to the classroom, and requires all appraisers in MN to take racial valuation bias education; one of the first states in the country to pass such legislation.

6. 2022 Session: HF3784/SF3503— This legislation clarifies the state’s Customary and Reasonable Fee provision, an expansion of the 2021 evaluation legislation that allows appraisers to perform Minimum Damage Acquisition reports when the value is less than $25,000, and establishes Appraiser CE reciprocity with out of state synchronous coursework.

Whew—that’s a lot of legislation!

So how exactly did a small group of appraisers manage to exert a steady, consistent influence on the legislative process in their state?

Working RE sat down with Byron Miller to answer that question.

Getting Started When he first joined the NSAIGRC as a committee member in 2012, Miller says that the committee met with MN-DOC, (which is the state enforcement/regulation organization in Minnesota) and no progress was made. “We would meet with them and bring up initiatives we thought were important. Often, they responded favorably to our agenda. Six months later we’d circle back with them, and they’d act like it was the first time they’d heard it!,” Miller reports.

“We did that for almost two years before I had an epiphany. I realized that we were meeting with the enforcement unit, which is like going to the police to change the laws on

search and seizure. We had to go to the folks making the laws, not the ones enforcing them...we had to go the legislature!” says Miller.

To gain some insight on how “the big boys” do lobbying, Miller attended AI’s Leadership Development and Advisory Council (LDAC) in Washington, D.C. At LDAC, participants lobbied for AI national’s legislative agenda. “This experience was very helpful in providing the basics of lobbying, as well as an understanding of how our legislative process works. It did not, however, provide me with the knowledge of drafting legislation or give me strategies for getting bills passed into law,” Miller says.

In 2015, Miller was appointed Chair of the NSAI-GRC. Miller recalls that he accepted the position on the condition that he would get to pick his own team and that his team could set their own agenda.

“The worst that could happen was nothing. I remember several people telling me we were going to fail because we couldn’t afford a lobbyist,” says Miller.

The definition of “lobby” is “To promote or secure the passage of legislation by influencing public officials.”

And so, faced with a number of important appraiser issues that needed to be addressed, Miller dove right in. “Lobbying—or getting legislation passed—is not rocket science. Very few things are. I started by studying up on it. You do need people skills. I have a minimum of those! You also need to be persistent, consistent, and organized.

And those are things our Chapter learned to do well,” reports Miller.

Through meetings with the members of the NSAI Chapter, Miller and his team collected feedback on the issues that were most important to appraisers. At the time, Minnesota had already passed statutes that were out of alignment with Dodd-Frank and appraisers were also complaining

about late payments from clients and non-competitive fees being offered.

Appraisers were also being billed for the state investigators’ time even when the investigation found the appraiser “innocent!”

Lobbying 101 With a clear set of goals established based on feedback from his Chapter, Miller and his team began reaching out to state legislators and building relationships. “I first approached Democrat Jeff Hayden, the state senator for my district at the time, and pitched the idea of our bill to him. He agreed to sponsor the bill and he was a good mentor to me, along with Republican Representative Tim O’Driscoll. These mentors were invaluable to me, explained how things worked in the legislature, and gave me good advice on how to get things done,” Miller says.

Miller’s approach is instructive for any appraiser who wants to pass legislation: Start with the state legislators that represent your district. “I started with Hayden because I was one of his constituents. Legislators are usually much more inclined to meet with you if you are a constituent in the districts they represent, otherwise they might see you as just another lobbyist organization. We used that approach with every bill. We would find members of our Chapter who lived in particular districts and encourage them to provide an introduction for us to with key state legislators on the house and senate committees we were targeting,” Miller says.

That approach really resonated with legislators, Miller reports. “Whenever I would meet with a legislator, I would tell them I was a citizen lobbyist. I don’t get paid and I don’t even get my parking validated. This is my way of giving back to this profession that gave me so much. I’m trying to make a positive change for my page 168

Summer 2023 Working RE 15

7page 15

profession and for my state. I had several legislators tell me that my approach made the difference. One told me ‘I get lots of people coming through my door, but you’re one of the few people that is truly altruistic and you’re not just in it for yourself,’” says Miller.

When he was younger, Miller swore he’d never get into politics. “My dad was a union president and I remember being exposed to many politicians of both parties. I guess it’s in your blood when you have the head of the state AFL-CIO over for dinner on a regular basis. The political process wasn’t really that foreign to me but I confess I actually went back and watched the ‘I’m just a bill, I’m only a bill’ episode from SchoolHouse Rock!,” says Miller.

(Visit https://bit.ly/schoolhr to watch the clip.)

Some of the advice that Senator Hayden gave Miller was that in order to pass laws, he needed bipartisan support. “Hayden gave me a list of his colleagues on the Democratic side and on the Republican side that work across the aisle. One person on that list was House Representative Tim O’Driscoll, a high-ranking Republican leader on the house side,” says Miller. “O’Driscoll and I hit it off right away. He provided invaluable insight on strategies to pass legislation in Minnesota.”

While Hayden was a Democrat, Republicans actually ended up being easier to work with, according to Miller, because many Democrats had a general view that anything “business” was bad or “the enemy.”

Nevertheless, having success in the legislature meant working with both parties. “We tailor our talking points and presentations based on who we are talking to. With Democrats, protecting the public trust really resonates with them. With Republicans, we emphasized that what we were proposing made good business sense. When we’d meet with our Chapter and encourage 16 Working RE Summer 2023

appraisers to contact their state legislators on a particular bill, we’d have two sets of talking points—one for the Dems and one for Republicans,” says Miller.

Creating a Bill Once the NSAI-GRC decided on the session’s agenda, it would typically ask the Appraisal Institute National for help in drafting the bill’s initial text.

Scott DiBiasio, Manager of State and Industry Affairs at AI, played a crucial role in assisting Miller’s committee.

From there, it was up to the team and other boots-on-the-ground appraisers to meet with state legislators, build bipartisan coalitions in the state House and Senate, and get the bill introduced.

Introducing a Bill The first step in getting a bill introduced is seeking out your initial sponsors. For each bill, Miller and his team would put together a cheat sheet of talking points for it. “We kept it short, one page or less. We also rehearsed our talking points, since we usually had less than 30 minutes with legislators (sometimes less than 10 minutes).

In the meetings with legislators, we’d introduce ourselves, and outline our proposed bill and why it’s important.

We would then give the one-page sheet to the legislator and explain what we were trying to do. A typical sound bite goes like this: ‘We’re appraisers; we perform a very important consumer function by protecting the public trust, and so on.’ We’d even tailor it further to individual legislators based on our research. Find some commonality and try to build rapport,” says Miller.

Setting appointments with state legislators and representatives became a regular practice for Miller. “Many people don’t realize they can call their state senator’s or state representative’s office and get a meeting set. These folks are busy but they also serve their constituents. Sometimes I’d have to

work hard to get a meeting and sometimes it would be cancelled at the last minute, but that’s the nature of the beast. Some people would politely express interest, others would bluntly tell you they have no interest in backing the bill. We worked hard to stay organized with our talking points and a clear one-pager that explained why the bill mattered to them and their constituents,” Miller says.

The key to success is getting the first few sponsors. Lots of legislators were wary of being the first “author” or sponsor of the bill, but once they saw others signed on, it’d be easier to get support. “In Minnesota, you can have up to five authors on the Senate side and 35 authors on the House side.

We would always try to get a combination of authors from the Democrats and Republicans on both sides,” advises Miller.

Getting a Bill Passed Once you have the bill drafted and introduced, it has to go through at least one, but sometimes several committees. “In Minnesota, bills dealing with state regulations will go through the commerce committee. If there’s a financial impact, it goes through the finance committee in both the state house and state senate. If there are other tangential issues with a bill, you could potentially have multiple hearings with various committees,” Miller reports.

Once the bill made it to the committee, Miller had to be ready to attend the committee hearing on very short notice. “My favorite was when I would get a phone call at 4:30 p.m. telling me, ‘Oh by the way, there’s a hearing on your bill tomorrow morning at the Senate Building at 7:30 a.m.’ When it’s your bill, you have to attend the committee hearings and speak in support of the bill.

The legislators expect you to defend it and advocate for it. Speaking skills come in handy and I struggled with that at

first. Some of the hearings are recorded as well,” Miller says.

On some bills, Miller had to attend multiple committees and testify multiple times. Occasionally other appraisers and the Department of Commerce opposed bills that Miller was working on, but keeping open communication and a cool head kept things moving along.

Once a bill makes it through committee(s), on either house or the senate, it moves to the “floor.” If you’ve done your homework and built a bipartisan coalition, you have a very good chance at your bill becoming law.

Conclusion Reflecting on his experiences over the last decade, Miller speaks with conviction and passion about how a little guy—an appraiser—can make a difference. “My experience shows that your individual voice can impact policy. You don’t need to have a big fancy lobbyist

(although it doesn’t hurt). You can be impactful. It’s been a very empowering process, and I have been blessed with a good group of folks on the team to make it happen. A lot of people get disheartened by our political process, especially with the current quagmire, but very few people are actually willing to get involved and do the legwork to change things,” says Miller.

At his own Chapter, Miller says he often speaks with appraisers that are “too busy” to assist on the Government Relations Committee. “They tell me ‘I love what you’re doing, but I don’t have time for that.’ That’s frustrating for me because I’m busy too, and just a one-person appraisal shop. When I’m not doing appraisals, I’m not getting paid. I decided that this was important to give back. It’s a tradeoff. The way we set up our government relations team, there were four of us, so we could always balance the workload. Having

a team that works effectively together enabled us to do that,” explains Miller.

If appraisers want to change things, Miller encourages them to get involved. “Appraisers can absolutely have more control over their profession if they stop waiting for other people to do the work. Advocacy is essential for the survival of the appraisal profession. Most people have no clue how our legislative process works. Even though it’s not perfect, this is the best system we have in the world. If my story shows anything, it is that we can make a difference,” argues Miller.

Byron Miller is currently running for Vice President of the Appraisal Institute, and if elected he will be the first Black Vice President of AI, since the formation of the Appraisal Institute 1991. If you’d like to contact Byron Miller, he can be reached by email at bmappraisals@isd.net. WRE

Summer 2023 Working RE 17

Cautious Steps Forward: Risks and Benefits of Hybrid and Desktop Appraisals

by Jo A. Traut, McKissock Learning

When appraisers receive appraisal

In order to mitigate risk, it is important to disclose what work was performed by the appraiser and what work was completed by others.

assignment requests, they ask themselves if the fee is acceptable, am I competent for this assignment, can I meet the deadline, and so on. With the GSE appraisal modernization program, appraisers will more likely be asked to complete desktop or hybrid appraisal assignments in the future.

You are unlikely to see an immediate surge in desktop and hybrid appraisal assignments in the current volatile real estate market, but once normalcy returns to the mortgage rates and the housing market (as it always does), you can expect them to increase. We have been here before; appraisers faced the same issues with the initial acceptance of exterior-only (drive-by) appraisals in the 1990s by the GSEs. At first glance, desktop and hybrid appraisals may seem like driving a car on an icy road. All of us tend to be extra cautious, as we should. This was the same process many of us underwent with the exterior-only (driveby) inspections. If the appraiser does not see the interior of the dwelling, how could the appraisal be credible?

Over time, we became accustomed to these assignments and agreed to perform them when we felt that a limited scope of work (an exterior inspection only) could still produce a credible appraisal. For the property’s interior

Jo Traut has been a real estate appraiser since 1997, and currently holds a certified residential appraiser license in Illinois and Wisconsin. Jo specializes in appraising luxury homes, valuations for lending purposes, relocation appraisals, appraisal review, and appraisal compliance. Jo was Residential Chief Appraiser for the 5th largest Bank in the United States. Jo currently serves as Director of Appraisal Curriculum at McKissock Learning (www.mckissock.com).

18 Working RE Summer 2023

physical characteristics, we relied on other sources.

Individual real estate appraisers may decide not to perform desktop and hybrid appraisal assignments due to the fee, the fact that they enjoy performing property inspections, or the fact that they are uncomfortable depending on others that they did not directly engage. Each of these reasons is valid, and you need to make your own business decision.

For others, desktop and hybrid appraisals may be a viable and even advantageous product to add to their appraisal practice. Analyzing, researching, and developing an appraisal may be preferable over performing a personal inspection. You may be interested in semi-retirement or have mobility concerns, so these products are a perfect fit. Alternatively, you may enjoy adding these products into your existing appraisal assignment mix.

It is possible to complete a desktop or hybrid appraisal without having any greater risk (possibly even less risk) than when you complete a traditional appraisal. Your inspection did not take place on-site, so it would be more difficult for someone to claim that you missed a structural crack in the basement’s foundation, that you rendered an appraisal with bias because of the homeowner’s race, gender, or another protected class, or that you were unprofessional and rude during the inspection (after all, you never met the homeowner/borrower, or agent).

Even so, it is your responsibility to ensure that the scope of work (level

of inspection) does not adversely impact the credibility of the appraisal.

Additional items to consider before agreeing to perform an assignment, during the appraisal development process, and disclosures to minimize your risk are listed below.

Before Agreeing to Perform the Assignment: • Identify any restrictions regarding desktop or hybrid appraisals and check for any limitations in your state.

• Assess your competency in completing the specific appraisal assignment.

• Request a reasonable fee based on the time involved in developing, analyzing, and reporting the appraisal.

If the inspection and windshield time take 20 percent of the appraisal time, then the analysis, research, and development must take 80 percent.

You should charge close to that 80 percent fee for this limited scope appraisal (since you are doing the same level of research, development, and reporting).

• Confirm that you are covered by your appraisal E&O insurance policy for hybrid and desktop appraisals.

• Review the engagement letter to ensure that you understand your responsibility and any third-party inspector’s responsibility.

• Should you have any questions or need clarification about the property condition report or the floorplan, are you permitted to contact the third-party property data collector? It could save you a considerable amount of time.

While Completing the Desktop or Hybrid Appraisal: • Verify the information and data included in the property condition report to the level that makes it reasonable for you to believe it is credible. The property condition report and floorplan should be checked against other sources such as MLS,

aerial images, and public records.

• Is there adequate photographic evidence (in the PCR or available from alternative sources) to support any opinions in the property inspection report regarding conformity, condition, quality, deficiencies, or positives about the subject property?

• View aerial imagery of the subject property and identify any positive or negative exterior influences. In your appraisal report, note the date of the aerial photo source. As an example, imagine that you are using Google Maps and the aerial photo is date stamped January 13, 2020. You would note that you have viewed a Google Maps aerial image and the date is January 13, 2020.

Items to Disclose or Report in your Desktop or Hybrid Assignment: • Check the preprinted language, the limiting conditions, the intended use, and the certification for USPAP compliance.

• Indicate which sources were used to verify the data, when they were used, and to what degree the data were verified.

• Clearly and conspicuously disclose the scope of work, including what was not done as well as what was done.

• Ensure there is enough information in the report for the intended users (and also other readers) to understand the extent of a thirdparty inspection performed for a hybrid appraisal.

Example: The appraiser did not inspect the subject property. A property data collector (engaged by the lender) reported the physical characteristics, condition, and conformity of the property. Factual characteristics of the subject property reported by the property data collector were confirmed by MLS listing information dated March 14, 2021, and by aerial imagery dated January 13, 2020.

• Include a disclaimer stating that the appraiser assumes no responsibility

if the appraisal is relied upon by parties other than those identified by the appraiser in the appraisal report as intended users.

• Hybrid appraisals should clearly state that the information regarding the physical characteristics and condition of the property is not a home inspection, and that the appraiser is not responsible for the accuracy of such items provided by other parties.

Example: The client, intended user, and any party not identified as an intended user understands the assumptions necessary regarding the data collection process and accepts the risks associated with it and agrees that the appraiser has no responsibility for any matter relating to the condition of the property or other matters reported by any third party or data resource.

• In order to mitigate risk, it is important to disclose what work was performed by the appraiser and what work was completed by others. An appraiser should perform work that corresponds to their responsibilities as stated in the engagement letter and certifications, at a minimum.

Like driving on an icy road, you must be aware of potential risks and take steps to reduce them. As you learned how to adapt to the exterioronly inspection appraisal assignments, you can navigate the challenges of hybrid and desktop appraisals by carefully considering your competency, the scope of work (level of inspection and by whom), and clearly reporting your research and sources. WRE Serving Real Estate Professionals

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Appraiser Countersues Black Plaintiffs Who Alleged Discrimination

by Isaac Peck, Publisher

There are now a number of lawsuits

Lanham’s counterclaim is the first instance Working RE has seen where an appraiser being very publicly called a racist and sued for discrimination has fought back with a lawsuit of his or her own.

facing appraisers where the primary allegation is racial discrimination.

Tate-Austin v. Janette Miller (now settled), filed in California in Dec. 2021, was one of the first—and perhaps the most publicized. But since late 2021, a number of similar lawsuits have popped up from North Carolina to Maryland.

Connolly & Mott v. Shane Lanham et al. is one highly publicized lawsuit covered at length by mainstream media—CBS News, the New York Times, NBC, CNN, ABC News, and more.

Filed in August 2022 in the U.S. District Court of Maryland, Connolly and Mott allege that Lanham discriminated against them and violated professional appraisal standards because of his allegedly “racist beliefs” (among other things).

Mr. Lanham is now countersuing Connolly and Mott for labeling him a racist, making false and defamatory accusations, and causing severe harm to his business, his reputation, and his well-being. Alongside his counterclaim, Lanham has also filed a Motion to Dismiss Connolly and Mott’s initial claim, arguing that they have failed to show any facts that support he discriminated against them.

Here’s the story.

Background Nathan Connolly and Shani Mott are both professors at John Hopkins University. Mott is an Instructor of Africana Studies and Connolly is a History Professor whose work focuses

22 Working RE Summer 2023

on racism, capitalism and politics—and he is also the author of a book titled A World More Concrete: Real Estate and the Remaking of Jim Crow South Florida.

Connolly and Mott purchased a home in Baltimore, Maryland in the Homeland neighborhood for $450,000 in 2017. In mid-2021, they contacted loanDepot seeking to refinance their home at a 2.25 percent interest rate— on the condition that the property appraised at $550,000. Which their loan officer believed was a conservative estimate.

Appraiser Shane Lanham was hired by loanDepot and subsequently appraised their home for $472,000, resulting in the denial of their loan application. Seven months later, Connolly and Mott approached a different lender, who sent a different appraiser, who appraised their home with a value of $750,000 after they “whitewashed” the home and had a white friend stand in for them.

This differential between the appraisals, and the fact that Lanham came in “low” compared to their loanDepot’s loan officer’s conservative estimate, form the basis of Connolly and Mott’s claim against Lanham. Their lawsuit describes Lanham as “indifferent,” “aloof,” never smiling or making eye contact and, more importantly, a racist because of how he selected his comps and completed the appraisal of their home.

Counterclaim In response to Connolly and Mott’s lawsuit, Lanham filed a counterclaim against

them on January 24th, 2023. Lanham’s suit proffers that, “Falsely labeling someone a ‘racist’ and falsely accusing someone of racism are among the most damaging, hurtful, and destructive attacks in today’s society.”

Lanham points to the widespread media coverage of the lawsuit and posits that Connolly and Mott’s statements have been “seen by millions of people” and that falsely accusing him of being a racist had a “devastating impact” on his reputation, business, livelihood, and well-being. Lanham explains that he was just trying to do his job with the best data he had at the time, but given the damage that’s been done to him, he now has no choice but to countersue Connolly and Mott.

Lanham’s counterclaim goes on to make a series of arguments that deal with the technical aspects of his appraisal. These arguments include: 1. Subject Property on a Major Roadway: At the heart of the dispute over Mr. Lanham’s appraisal appears to be the fact that Connolly and Mott’s home faces Northern Parkway, a major roadway in Baltimore City that, in most portions, is “at least six lanes wide and used by motorists for crosstown travel,” according to Lanham.

Mr. Lanham’s suit argues being directly on such a busy street is a “significant factor affecting the value of the property” due to (A) air pollution and poor air quality, (B) near-constant noise generated by vehicular traffic, and (C) the danger such proximity poses to children who might play in the front yard of the home.

In their initial complaint, Connolly and Mott lambasted Lanham for his “unjustifiably large negative adjustments” to the comparables he selected and, while acknowledging that some adjustment may have been necessary for the subject property’s proximity to Northern

Parkway, write that “a negative adjustment of ten percent is excessive and is inconsistent with proper appraisal practices.”

Additionally, Connolly and Mott praise the second appraiser for not choosing any comps located on Northern Parkway, writing that it demonstrates the “illegitimacy of using Northern Parkway as a boundary” and note that the second appraiser only adjusted a negative two percent for being on a busy street— which they argue is “consistent with industry standards.”

2. Sale of House Next Door: On the date Lanham completed his appraisal in June 2021, the house directly next door to the Subject Property was listed for sale for $500,000. It had been on the market for over 30 days at the time and only ten days after Lanham completed his appraisal, the list price was lowered to $475,000. Another month passed before this property was under contract and finally closed at $465,000 in August 2021.

Lanham’s suit points out that the house’s sale price directly next to the Subject Property was $7,000 below his appraised value. While the Subject Property “had more above grade living area square footage,” Lanham argues that the kitchen of the house directly next door had (A) a kitchen with improvements that made it more desirable than the kitchen of the Subject Property, and (B) an improved sunroom that was not present at the Subject Property.

“Some value adjustments to [the house next door] would be necessary to compare it to [the Subject Property], but the location of [the house next door], on the same busy road as [the Subject Property], makes [the house next door] a good comparable property and the fact that [it] sold for $465,000 shortly after

the effective date of Mr. Lanham’s appraisal supports and validates the amount of Mr. Lanham’s appraisal,” reads Lanham’s counterclaim.

3. Analysis of Comparables: A fair portion of Lanham’s counterclaim against Connolly and Mott centers on discussing the comparables used in his appraisal report and defending the adjustments he made.

Lanham’s suit includes detailed descriptions, as well as pictures of the kitchen, bathrooms, basement, sunroom, and other areas of both the Subject Property as well as the comparables, in an effort to explain the differences in the properties and justify the value adjustments that were made for size, condition, living area, proximity to major roadways, and so on.

4. Credibility of the Second Appraisal: Lanham and his legal team have repeatedly requested a copy of the second appraisal which valued Connolly and Mott’s home for $750,000, but so far, the original plaintiffs have not provided a copy.

The second appraisal occurred in January 2022, seven months after Lanham’s appraisal, and while Lanham has not seen it, his counterclaim attempts to raise questions about its credibility.

First is the discussion of the home that is immediately next door to the Subject Property, which closed in August 2022 (five months prior to the second appraisal) for $465,000.

Lanham questions why the second appraiser did not consider this home sale as a comparable or give it any weight given that it is immediately next door to the Subject Property.

Second is the discussion of a home that was listed for sale shortly after the second appraisal that was 0.2 miles away from the Subject Property and located on the same page 248

Summer 2023 Working RE 23

7page 23

busy street—Northern Parkway.

This property was listed for sale for $605,000 shortly after the second appraisal was completed. The property stayed on the market for over three months “because it was overpriced,” argues Lanham. Over the three months it was on the market, the home’s list price was lowered to $550,000 and then again to $510,000, before it finally went under contract.

Lanham uses both of these examples to question how the second appraiser could possibly justify a value of $750,000 when it is clear that similar, comparable properties right next to the Subject Property on Northern Parkway were selling in the $400,000 to $500,000 range, both before and after the second appraisal’s effective date.

5. Not a Fair Comparison: Part of Connolly and Mott’s initial claim is that they “whitewashed” their home prior to the second appraiser visiting the property, which their suit explains as “removing the many indicia that a Black family lived there, such as family photos and their children’s drawings of Black people, and replacing them with items borrowed from white friends.”

However, Lanham posits that to compare his appraisal with the second appraisal, which was performed seven months later and relied on “home sales that had not even occurred” at the time of his appraisal is unfair. Such an “ill-conceived experiment involving different appraisers, a seven-month gap, and intervening changes in market conditions would not withstand even basic scrutiny in the serious academic environment in which they [Connolly and Mott] work,” argues Lanham.

False Accusations and Defamation One of Lanham’s charges against Connolly and Mott is that they were well 24 Working RE Summer 2023

aware of the lower-priced comparable property sales that were occurring right next to their home—especially the sale for $465,000 immediately next door to their home (right after Lanham’s appraisal) and the other property whose list price was lowered from $605,000 to $550,000 to $510,000 after their second appraisal. Lanham alleges this on the basis that they are “educated consumers and knowledgeable about recent sales transactions in the Homeland neighborhood.”

Consequently, Lanham argues that Connolly and Mott knowingly engaged in a media campaign to spread false and defamatory statements about him and failed to disclose material facts that would have cast doubt on their accusations. Lanham argues they did so with actual malice—that is, with “knowledge of their falsity or reckless disregard for the truth or falsity of those statements.”

The harm caused to Lanham as a result of Connolly and Mott’s alleged defamation and false accusations include: • Subjecting Lanham to public scorn, hatred, contempt, or ridicule and discouraging others in the community from having a good opinion of him.

• Injuring Lanham in his profession, employment, and business, including loss of income, reduced business, and being told directly by clients that he has not received work because of the accusations made against him.

• Subjecting Lanham to harassment, including causing him to be the recipient of malicious and threatening voicemail messages and the target of social media postings.

• Causing Lanham mental anguish, emotional distress and personal humiliation, including depression symptoms, anxiety, headaches, difficulty sleeping, irritability, upset stomach, and trouble with social and family relationships.

As a result of being injured by Connolly

and Mott’s allegedly false and defamatory statements, Lanham is seeking: 1. compensatory damages in excess of Two Hundred Fifty Thousand Dollars ($250,000); 2. punitive damages in excess of Two Hundred Fifty Thousand Dollars ($250,000); 3. together with interest and costs, and such other relief as may be appropriate under the circumstances.

Lanham’s counterclaim is the first instance Working RE has seen where an appraiser being very publicly called a racist and sued for discrimination has fought back with a lawsuit of his or her own.

It will be interesting to see how this case develops in the months ahead, or if other appraisers that have been publicly vilified as “racists” will also file similar counterclaims.

Motion to Dismiss Alongside Lanham’s counterclaim against Connolly and Mott, Lanham has also filed an entirely separate 28-page Motion to Dismiss with the Court—asking the judge the dismiss their initial claim against him because they have no factual support that he discriminated against them based on their race.

Here is a very abbreviated version of Lanham’s arguments: 1. Even if the Plaintiffs can prove he completed his appraisal “negligently,” without direct or circumstantial evidence that Lanham’s alleged professional errors had discriminatory intent, the case must be dismissed.

Otherwise, “every professional malpractice or negligence action would give rise to facts sufficient to allege discrimination.”

2. Plaintiff’s “whitewashing” experiment does not prove Lanham acted with a racially discriminative motive; it merely establishes that two different appraisals, seven months apart, resulted in different appraisal values.

A second appraiser assigning the home a higher value does not prove discriminatory intent.

3. Plaintiffs repeatedly allege that Lanham should have used comparable properties in the portions of the Homeland neighborhood that are “predominantly white.” Still, without an allegation that Mr. Lanham knew that the comparable properties he selected were “in a majorityBlack census block,” Plaintiffs cannot prove discriminatory intent.

4. Plaintiffs allege that Lanham’s ten percent “busy street” adjustment shows discriminatory intent, but have failed to allege that Lanham has not applied the same or similar deduction for property owners of different races.

In short, Lanham argues that Connolly and Mott have no actual evidence or facts to support their argument that he is a racist or had discriminatory intent.

“Plaintiffs cannot transform allegations of incompetence or a breach of appraisal industry standards into racial discrimination by baldly alleging that

Mr. Lanham believed that Plaintiffs did not belong in their neighborhood and that their home was worth less than other homes because of their race.

There are no facts alleged in the First Amended Complaint, and none can be alleged with good faith, that Mr. Lanham treated Plaintiffs any differently than homeowners of other races,” the motion reads.

Appraisal industry stakeholders will be watching this case closely in the months ahead.

This is a developing story. Please check WorkingRE.com regularly and subscribe to our digital newsletter for the latest appraisal news and information. > A copy of Lanham’s Counterclaim can be found here: https://bit. ly/CounterClaim2020 (Counterclaim starts on Pg. 18). > A copy of Lanham’s Motion to Dismiss can be found here: https:// bit.ly/motion-to-dismiss (A copy of Lanham’s appraisal is on Pg. 55) > A copy of Connolly and Mott’s initial claim can be found here: https://

bit.ly/valuationscomplaint WRE

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Non-Lending Appraisal Assignments: Interview with Joshua Walitt

by Kendra Budd, Editor

It’s no secret—traditional mortgage

When you step back and see how different types of clients, intended uses, and appraisal types work, you’ll appreciate and understand mortgage appraisals a lot better.

lending assignments have declined substantially. This has caused significant pain within the appraiser community, especially for those appraisers who exclusively did lending work.

In the wake of this drastic drop in traditional lending appraisal orders, many appraisers are only just beginning to explore non-lending assignments and diversify their businesses. “Don’t be dependent on just one type of product or one type of client” is an old adage in the appraisal profession that rings especially true today.

But, what exactly are non-lender assignments? How do appraisers navigate them?

We sat down with Joshua Walitt, Principal Consultant for Walitt Solutions and the course author and instructor of Non-Lending Appraisal Assignments (7 Hrs CE), available on-demand at OREPEducation.org, to gain a better understanding of the ins and outs of the world of non-lending assignments, and answer the multitude of questions appraisers have.

Here’s what we learned.

Q: What are non-lender appraisals? What makes them different?

Walitt: Also called private appraisals, typically when someone says “nonlending appraisals” they mean something that is not for mortgage or foreclosure appraisals. There are a variety of

Kendra Budd is the Editor of Working RE magazine and the Marketing Coordinator for OREP, a leading provider of appraiser E&O insurance—trusted by over 10,000 appraisers. She graduated with a BA in Theatre and English from Western Washington University, and with an MFA in Creative Writing from Full Sail University. She is currently based in Seattle, WA.

assignments that fit into this bucket. We have pre-listing and pre-purchase where folks might be following the advice of a real estate agent, or a homeowner who is looking to list a property themselves, or maybe there is a waiver situation or some other reason that a party wants to know the value before they purchase a home. Whatever it is, it’s not being ordered by the bank.

Non-lending appraisals also require a lot more client interaction. In mortgage appraisal, you may never speak to a person or have very few messages that go back and forth with a client. But with non-lending appraisals there’s a lot more communication that is necessary.

One example of this is the engagement letter. For many appraisers that have only done mortgage work, they don’t have their own engagement letter because they’re so used to the client (lender or AMC) setting the requirements for the order and sending over an engagement letter. With non-lender work, it is the appraiser who is responsible for providing the engagement letter to their client and one of the first mistakes that appraisers can make is not having that engagement letter.

So, the first thing that has to be established in these appraisals is communication. I like to refer to this as the “kitchen table talk,” where you sit down with the homeowner or the agent (maybe or maybe not at a kitchen table). You’re having a longer conversation than you normally would, where you’re pinpointing what this assignment is really about—problem identification.

So, you need to ask: what problem am I solving here? Is it related to the date page 28 8

26 Working RE Summer 2023

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of death? Okay, when did they pass away? Is it related to when a separation occurred? Okay, when did you separate? What was the price when you bought it seven years ago? What kind of value are we solving for? Is this going to the IRS? Asking a lot of questions is imperative.

In our CE course, Non-Lending Appraisal Assignments, we address some of the questions and discussion points you have to establish: whether that’s with your client or your agent, or even if an attorney is involved acting as your client’s agent. You have to really dig in. Collecting that information is different from mortgage work, it includes different intended uses and intended users, different types of value, different effective dates, so you really need to master these moving parts.

Also, you do have to write a different style report. You’re probably going to be writing in a bit more detail.

Maybe it’s going to be seen by the IRS. Maybe it’s being read by a homeowner and they don’t necessarily know a lot about appraisals. Maybe it’s appearing before a jury or a judge. We really want to have our ducks in a row and make sure the report is clear. We want to ask ourselves: “Are we progressing through the story where someone can actually understand what’s going on?”

You’ll also use a different form or at the very least write in a different narrative. Don’t use the mortgage appraisal forms that you use in every day mortgage appraisal work. They clearly have inappropriate pre-printed language that just does not apply, and the state boards love it when you use the wrong form. It’s an easy check-box on their investigations and can get you into trouble. It’s like fitting a square peg into a round hole.

Q: What types of non-lender work are there?

Walitt: There are so many different 28 Working RE Summer 2023

types! Just to cover a few, we have estate planning, estate distribution, divorce, tax appeals or assessment appeals, and then one that has a lot of different assignment conditions is IRS appraisals—so, somehow related to donations or taxes where you have to meet requirements of the IRS. There are others but those are some of the big ones.

Q: Are some fields more lucrative than others? Are there some fields that appraisers should avoid?

Walitt: You know, I wouldn’t say any one of them is any more or less lucrative. I think that varies by different appraisers’ experiences and how they run their business. It could also depend on your area—maybe there’s just more of a certain type of work available.

For example, some appraisers don’t want to be involved in testimony. They don’t want to go to hearings, depositions, or trials. But, assessment appeal, bankruptcy cases, and divorce appraisals, could all involve or even require appraisers to go to a hearing. It would be weird to take on this kind of appraisal then tell a client that you’re not going to show up and follow through. You need to know what could be expected by your client. Obviously, this could be a separate engagement or separate fee scenario, so it goes back to having that communication beforehand. You don’t want to go into certain types of assignments and then panic when it comes time for testimony. So, if that doesn’t interest you, just look at the other types of assignments.

Something that is different is that in the mortgage lending space everyone usually wants the appraisal value to be high. In non-lending work, you see both sides of the spectrum. So, we need to be comfortable in our methods because you’re going to get a different push and pull in different types of assignments.

For example, in divorce appraisals one party usually wants a high number

and the other wants a low number. I worked a divorce appraisal where one person was very difficult to work with and it took me weeks to get the appraisal scheduled. Once I finally found a time to meet with them, it seemed everywhere I walked there was a problem in the house (according to them). I had to have my professional shield up. I had to stick to the facts—what was absurd versus what was reliable.

When I wrote the report, I addressed what had been said to me. I made notes such as “no cracks in the windows, no cracks in the flooring,” which this client had insisted were present. I might not normally note these things, but I knew that it could be an issue, so I needed to address them proactively. I asked the client if I could record an interview with them and during our recorded conversation they acknowledged there were no cracks. I needed to establish that because I knew they had a motivation to make this property look awful. My job is based on facts and markets. I had to do what was right. So just like in mortgage lending assignments (and perhaps more so), you get pressured often. Your job is to handle it professionally and proceed based on the facts and market data.

Q: How can appraisers get started with non-lending appraisals?

Walitt: Contacting agents! A lot of agents want pre-listing appraisals, especially on complex properties. One of the best ways to find this type of business is networking with real-estate agents. Hopefully, as appraisers we’re already talking to them, whether on the phone or about the listing we’re appraising—we should be talking to them all the time in mortgage work.

This is a great opportunity to deepen those relationships and leverage your network to get referrals.

So yes, we might market to agents for pre-listing, but the relationship shouldn’t be limited only to getting pre-listing appraisals.

Who do people go to when they’re getting divorced, or when they’re having a life change? Oftentimes, the only professional they know who’s in real estate is the agent they used previously.

Real estate agents are referring people out all the time for various appraisals.

In a divorce case, you’ll also meet an attorney, and that can open up even more opportunities. Or if a listing is related to taxes, you’ll meet an accountant who’s going to come to you in the future. There is a sea of opportunities for appraisers.

A lot of people have also found success in publishing blogs and other information. Some appraisers generate some very useful statistics and publish those to their websites. Look at your website and ask yourself: “what is this really telling my client?” Having valuable website content can help your clients see what is going on in the market, while also keeping it simple. You don’t want to overwhelm them, they don’t need to read a novel.

You’ll also want to present yourself to a myriad of people on your own time—to attorney offices, brokers, and accountants. You can bring donuts, sandwiches, or even bottled water.

You’re not going to walk out with a ton of assignments. You’re probably going to walk out with zero appraisal assignments that first time. But at least you’re showing people that you know your stuff. Get in front of people. Are you convincing when you talk? If you’re presenting at a real estate office or in any venue and you captivate people to where they listen and understand, that’s going to be good for you.

You need to put your name out there. Some people think mortgage lending has dried up, and now they want to switch to non-lending. Now is a good time to take some classes on non-lending appraisals and start branching out. But, it takes time. You’re not going to get 20 appraisals the first month. It is a marathon. Even when

mortgage work comes back, you’ll want to keep working this side of your business because it’s always there and you’ve got to tend to it.

Q: Why is now the right time for appraisers to start non-lender work?

Walitt: I think two-fold. One, it makes sense to have these other lines of business. You don’t only want to rely on mortgage lending. The second reason is that you have time right now because it’s slower. You have the opportunity to take the courses you want and develop additional skills— sales, presentations, and appraisal methods and techniques.

We also have time to send emails, to call up the broker offices, to ask for 30 minutes and if they’re looking for something different.

It’s not just the practical money side either. It’s the fact that we have time to make contacts, to revamp our website and our marketing strategies. It makes sense to focus on expansion even when the mortgage work comes back.

Q: Is there anything appraisers should know about non-lender work before starting?

Walitt: You need to know your craft.

Some people think they can just start completing divorce, estate, or tax appraisals. The reality is you don’t know what you don’t know, especially if you’ve never done non-lending appraisals. It is just logical and professional to know the needs of a job that you’re working on.

You need to educate yourself.

We have to understand what the problem is we’re solving. One example is that mortgage appraisal work allows an appraiser to say: “I’m appraising it as repaired,” which is acceptable in some mortgage assignments. We have to understand whether or not that type of presumption or consideration is appropriate for other assignment types. We can’t just turn a report over

to a client and say: “Here it is ‘as if’ this damage is repaired.” They need to know how the damage affects the value—that’s how they ordered the appraisal. They want you to appraise it with all the damage because that’s the nature of the assignment. So, we need to make sure we’re not applying our experience from the mortgage side if it doesn’t really translate.

I think understanding our minimum standards, especially in reporting is crucial because we are using those different forms. We’re no longer just obeying a singular form.

Q: Should every appraiser explore non-lender work?

Walitt: Absolutely. The reason might surprise you. I talk to appraisers who only do mortgage work and that’s all they want to do, but I say just dip your toe into other assignments. Even if you just learn about them, the quality of work is going to improve in your mortgage appraisals. When you step back and see how different types of clients, intended uses, and appraisal types work, you’ll appreciate and understand mortgage appraisals a lot better. WRE

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Concessions, Kickbacks, and the Appraiser’s Nightmare

by Richard Hagar, SRA

A s we all know, the market has

Learn how to provide an accurate value conclusion that protects the appraiser from the potential ramifications of their bad acts.

changed—homes are taking longer to sell. On top of that, many of the current real estate agents have not been through a downturn like we experienced in 2007–2012, nor the criminal indictments that followed. Agents today become panicked when their listings haven’t sold in the first two hours of being listed. When I tell them “Back in the day it took 90–120 days to sell a home” they get a glazed look in their eyes. Instead of simply inputting information into the MLS and collecting a check, they are now faced with interacting with an owner for a couple of months and might have to figure out how to properly market and price a property (Oh the horror).

So, it begins, the panic and scramble to figure out how to sell a house without reducing the sales price…and their commission. A listing agent first suggests that their seller offer to pay for a buyer’s closing costs. The agent then inserts the offer into the MLS listing comments or an online ad. Then on the other side of town, a different agent sees the concessions offer and decides that they will do the same for their listing.

The snowball is starting to roll downhill. One listing in town is followed by two, then three, and so on.

When a house hasn’t sold in 30 days the agent panics further and convinces the seller that they should offer more

Richard Hagar, SRA, is an educator, author and owner of a busy appraisal office in the state of Washington. Hagar now offers his legendary adjustments course for CE credit in over 45 states through OREPEducation.org. The 7-hour online CE course “How to Support and Prove Your Adjustments” shows appraisers proven methods for supporting adjustments.

Learn how to improve the quality of your reports and defend your adjustments! OREP members save on this approved coursework. Sign up today at OREPEducation.org.

incentives: “Buy this home and the seller will pay for the buyer’s closing costs and furniture or toss in a new car, or down payment assistance!” Or whatever you can imagine. First off cars, furniture, and monetary gifts are personal property, not real estate. The marketing snowball is getting larger, rolling faster and is about to roll over the appraiser. A seller paying for the buyer’s closing costs, providing a new car, money for the down payment, etc. are called concessions. The term concessions is used because it sounds pretty and less nefarious, but it is simply another term indicating an appraisal problem. These concessions are actually considered kickbacks in criminal law (and by HUD!) and they create all sorts of nightmares for appraisers.

Kickback ~ noun: • a return of a part of a sum received often because of a confidential agreement.

• a rebate, by a seller to a buyer or to one who influenced the buyer • a bribe or payment given to someone as a reward for an action Think of it this way: if an agent can convince a buyer to overpay for a house, the seller will give a kickback to the buyer. In other words, the agent and seller are bribing the buyer to pay more than market value for the house.

Now, maybe the kickback is beneficial to the buyer—it likely changes the price of “the deal” but does it really change the value of the real estate?

No, and no matter the reason or page 32 8

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7page 30

terminology, it creates a nightmare for appraisers. If we don’t come in at the inflated sales price, we get nasty phone calls and threats from the agent, mortgage broker and/or unscrupulous AMC. Making things even more complex is when agents or loan officers fail to provide the appraiser with the addendum that lists the concessions.

Numerous times I’ve asked my client/ AMC to send over a copy of the purchase contract only to be told: “Obtain a copy from the agent.” The agent?

The agent isn’t required to furnish a copy, it’s the responsibility of the lender/client to furnish a complete copy of the fully signed purchase contract to the appraiser. However, by keeping the appraiser in the dark, many agents and loan officers hope that the appraised value will magically come in at the inflated sales price.

Kickbacks, or concessions, always result in an inflated purchase price for the home. Is the higher purchase price above “market value”? That’s a different question every appraiser must answer.

What many don’t understand, or want to acknowledge, is that a sales price might not equal market value— the value appraisers are required to state in their reports. Agents just want the appraisal to come in at the sales price so that they can make the seller happy, plus receive a larger commission.

What Appraisers Must Do There are many steps appraisers must follow, more than I can list here. However, you should start off by listing and describing the concessions. Learn how to provide an accurate value conclusion that protects the appraiser from the potential ramifications of their bad acts.

On the first page of FNMA’s form, they ask this question: “Is there any financial assistance [loan charges, sales concessions, gift or down payment assistance, etc.] to be paid by any party on behalf of the borrower?”

The appraiser has no choice when 32 Working RE Summer 2023

faced with this question, they must answer and if they get it wrong… then the appraiser is in trouble. After disclosing the information, the appraiser’s next task is to determine how the concessions have impacted the sales price. Federal law, FNMA/ FHLMaC guidelines and USPAP all point to a solution.

USPAP / Standards Rule 1-2 states: In developing a real property appraisal, an appraiser must: • (c) …ascertain whether the value is to be the most probable price: in terms of cash; or if the opinion of value is to be based on non-market financing or financing with unusual conditions or incentives, the terms of such financing must be clearly identified and the appraiser’s opinion of their contributions to or negative influence on value must be developed by analysis of relevant market data; Freddie Mac (Bulletin 2009-18) states: • The appraiser’s opinion of value must reflect the value of the subject property without concessions.

Every time I teach a class on this topic someone in the room yells out that “We don’t have to make adjustments because a seller paying the buyer’s closing costs is common.” Statements like this tell me (and FNMA) that the appraiser is: a) unaware of what’s happening in the market, b) has been taught incorrectly, c) doesn’t want to spend time figuring out the adjustment or, d) doesn’t know how to properly determine the adjustment.

Concessions being paid by a seller are not the majority in any market. No matter where you are located the totality of sales includes cash purchases, sales of highly priced properties by rich people, sales between related parties, and foreclosure auctions; none of

which require the seller to pay for the buyer’s closing costs or provide personal property as incentives to complete the purchase. In every study I’ve read and every market I’ve analyzed, concessions are usually only used in the lower-end of the price spectrum, and even in this segment are a small portion of the sales. In other words, they are not as “common” as some appraisers believe.

The value conclusion that most appraisals must be based on is defined in federal law. I won’t bore you with the full federal definition of market value, since it’s already listed in the Certification section of your appraisal, you know the one you’ve read several times and memorized.

However, paragraph five includes the following requirement that reinforces what Freddie Mac previously indicated: • the price [appraised value] represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale and; • Adjustments to the comparables must be made for special or creative financing or sales concessions.

So, if concessions of any kind are included in the sale of property, the appraiser must, by law, consider their impact on the sales price which usually results in a lower appraised value.

(Hey, don’t yell at me, I didn’t make this stuff up.)

Solutions to Keep you Safe • Make sure you have a complete signed purchase contract.

• In the appraisal, list how many pages of the contract you have in your possession (In case someone is hiding pages from you).

• List the concessions on page 1 and in the final reconciliation.

• In the sales grid, list any known concessions that were involved

with the purchase of a comparable.

• If a comparables’ sale price includes concessions, then make a supported adjustment.

• In the final reconciliation section state the subject’s market value excluding the concessions (If you are lucky and have sufficient data, there’s a chance that your value conclusion may still equal the sales price).

• How concessions are listed in the cost approach is a whole other problem I can’t describe in the allotted space here.

I know a lot of people have diverse opinions on this topic however, I have hundreds of criminal indictments and state actions against buyers, sellers, loan officers, and appraisers that backs up every point I’ve stated (we go through a few of them in my

live classes). This article is a quick overview of a complex problem that appraisers are facing on a regular basis. Education can help untangle the complexity and reduce confusion so it’s up to you to take the first step towards enlightenment.

If you don’t fully understand the definition of market value or how to determine and make an appropriate transactional adjustment, I understand. For years I’ve been teaching a 4-hour class called Defining Market Value and How to Adjust for Concessions.

I’ve taught the class to prosecutors, state officials and appraisers all over the United States. Since I can’t teach live in every state, I created a webinar and state approved CE version of the class. No matter which version you take I’ll explain the laws, Fannie Mae guidelines, and USPAP requirements,

plus take you step-by-step through the options that are available. The webinar and CE class are available at OREPEducation.org/hagar.

Understanding kickbacks and how to handle them in an appraisal is going to become very important over the next year or two, so avoid the nightmare. Keep yourself safe and learn how to handle the issue.

I’m trying to keep you safe out there. WRE

Determining Market Value and How to Adjust for Concessions 4-Hour - $79

On-Demand CE Course Taught by: Richard Hagar, SRA

Learn More at OREPEducation.org

Summer 2023 Working RE 33

ChatGPT: Valuable Tool or a Replacement for Real Estate Appraisers?

by Dustin Harris, The Appraiser Coach

As artificial intelligence (AI) and

AI is a tool to support your work, and you remain ultimately responsible for the content and quality of the appraisal report.

machine learning (ML) continues to advance, it has found its way into various industries—including the appraisal world. ChatGPT, a powerful AI language model developed by OpenAI, has been making an impact on the world and in the valuation profession as well. While some may question whether AI is a threat or help to appraisers, its potential applications in the appraisal field are vast.

Elon Musk once tweeted, “AI is a significantly higher risk than nuclear weapons...” and, unchecked, he could be right. However, the truth of whether it is a help or hurt to appraisers probably lies somewhere in the middle. In this article, we’ll explore how appraisers can effectively use ChatGPT to enhance their work, from writing narratives to market analysis.

ChatGPT: A Game-Changer for Appraisal Work For those who have embraced it, ChatGPT has been transforming multiple aspects of appraisal work, such as: Marketing: • Creating lists • Writing emails and messages to current and potential clients • Crafting blogs • Strategizing networking and relationship development

Dustin Harris is a successful, self-employed, residential real estate appraiser. He has been appraising for over two decades and recently sold his appraisal business, Appraisal Precision and Consulting Group, Inc., and is now the Director of Appraiser Education for True Footage, LLC. He is a popular author, speaker and consultant who owns and operates The Appraiser Coach.

He personally advises and mentors other appraisers to run successful appraisal companies and increase their net worth. Connect with Dustin at https://theappraisercoach.com/.

34 Working RE Summer 2023

•

•

Writing presentations for ‘lunch and learn’ events with real estate agents Crafting the perfect apology letter when you upset a key loan officer in your small town

Business Development: • Identifying key visionary goals for the company • Analyzing P/Ls and identifying areas to cut spending • Creating business plans • Developing ideas for growth • Writing procedures • Organizing schedules for maximum efficiency Appraisal Work: • Writing narrative • Market analysis • Market-specific information • Descriptions of adjustments • Terminology • Research To effectively work with AI, such as ChatGPT, and get the results needed for your appraisal work, follow these steps: Choose the right prompt: This is the real key to getting the results you want. Select the appropriate prompt from a list of sample prompts based on the task you want to accomplish. For instance, if you’re working on the narrative of the appraisal report, try using a prompt such as, “Provide a concise introduction for the appraisal report, including an overview of the subject property, its location, and the purpose of the appraisal.” Another example for

writing a narrative could be, “Explain the methodology used in the appraisal, including data collection, analysis, and the valuation approach.”

Input the prompt: Enter the chosen prompt into the ChatGPT interface, along with any specific details related to your subject property or market area. This will help the AI generate a more tailored response. The more information you can give it, the better success you will have.

Evaluate the generated response: Review the AI-generated content to ensure accuracy, relevance, and clarity.

The AI might provide a good foundation, but it’s essential to double-check the information and edit as necessary to fit your specific appraisal report.

Iterate and refine: If the generated content isn’t satisfactory or requires additional information, rephrase or modify the prompt to get a better response. You can also provide feedback to the AI, guiding it to produce more accurate or relevant information. Sometimes, you have to talk to ChatGPT like you would a 5th grader to ensure clarity and understanding.

For example, I often find myself saying things such as, “Remove the reference to the commercial property a half mile away and make the whole thing more conversational in tone.”

Apply the AI-generated content:

Once you have the desired response, incorporate the content into your appraisal report, ensuring it meets industry standards and follows appropriate USPAP, Fannie Mae, and state guidelines.

Repeat the process: Use the AI with different prompts to address various sections of the appraisal report, market analysis, terminology, and research.

Over time, you’ll become more adept at using AI to efficiently generate useful content for your appraisal work.

Save and reuse templates: As you find prompts that yield helpful results, save them as templates for future use.

For example, “Use this format to write a similar narrative for the following property.” This will save time and make your interactions with the AI more efficient.

The Future of Appraisal with AI AI, like ChatGPT, won’t replace appraisers (at least in the near future) but can serve as a valuable tool to enhance their work. Learn to see it for what it is—a tool! By embracing AI technology and learning how to use it effectively, appraisers can improve their efficiency, streamline their processes, and provide more accurate and comprehensive reports.

That does not mean we should not be aware of the potential costs to appraiser jobs that AI might have in the future. Technology is changing the

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world and is getting better and better at repetitive tasks. In a recent interview with Geoffrey Hinton, widely known as “the Godfather of Artificial Intelligence,” it was said, “I think it is going to make jobs different. People are going to be doing more of the creative end and less of the routine end.”

For the ‘form fillers’ out there, there will likely come a time when your ‘work’ could be replaced. Time to get creative.

If you cannot readily answer the question, “What makes my valuation work different from my competitor’s?” you may want to start thinking about making some changes.

It’s important to remember that AI is not a perfect technology, but it is ever-evolving, and as we learn to work with it more effectively, its potential applications and benefits will only continue to grow. Remember, AI is a tool to support your work, and you remain ultimately responsible for the content and quality of the appraisal report.

It is still your signature. By utilizing AI as a powerful resource, appraisers can stay ahead of the curve in an ever-evolving industry. As ChatGPT and similar technologies continue to advance, their capabilities will only become more refined, making them an increasingly indispensable tool for appraisers who wish to excel in their field. WRE

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Women in the Appraisal Industry: Interview with Kathy Walsh

by Kendra Budd, Editor

It’s no secret that the real estate ap-

There has been an “old boys” network in this profession, and it was difficult to get into the field at first, but I think that is changing as younger people move up.

36 Working RE Summer 2023

praising profession is a male dominated field. In fact, men make up 66.5% of the industry, while women only make up 33.5%. Seeking out, including, and learning from those of the opposite gender can help eliminate biases making your business less likely to face a discrimination claim. Not only that, but it gives women an opportunity to work in a field they might otherwise not consider.

Kathy Walsh, SRA, AI-RRS, ASA is one of these women appraisers who wasn’t discouraged by the male dominated field. Walsh is also the owner and founder of My Appraisal Office LLC, a woman-owned and operated business since 2010 and includes 10 appraisers and 2 office staff.

We were able to sit down with Mrs. Walsh to gain a better understanding of what it’s like to be a woman in the appraising profession.

Here’s what we learned.

Q: How did you start appraising?

What drew you to the field?

Walsh: I had a technical background, working at a “shared processing” company in Canada, which is where I’m originally from. I moved to the United States and became a full-time mom with 3 kids. As they got older, I found I had more time on my hands and was looking for something fulfilling, but not full time, and that had some flexibility. I had heard about appraising from another mom I met, who was working with Beeken Appraisal, a local firm. Looking back, I wish I had known about this profession much, much earlier. As it turned out, they needed help with admin backup coverage, so they hired me on a very part-time basis. The

work included setting up and reviewing reports. I was also recruited to work for a larger firm. They needed full time coverage, so I set up a job share with a friend. I discovered that the methods that were being used were fairly dated so I introduced new technology to the process and soon was helping other firms to decentralize and implement new systems and processes to become more efficient. At one point I wasn’t sure which way I would go, either provide tech support or become an appraiser. Appraising won out and I started attending Community College, taking the classes in lieu of a degree as well as the qualifying education for my appraiser license. It was difficult to get a supervisor and after renewing my first 2-year trainee license with no hours, I finally convinced Dave Beeken to teach me. I think he wanted to make sure I followed through with all that education prior to taking me on. It was interesting to be in my 50s, in school and taking algebra. But I got through.

Q: What was it that inspired you to start your own business? How did you get started?

Walsh: I think it was mostly because Dave Beeken was retiring but it was also because I wanted to create a company that provided office management for other small offices and still provide tech support for other firms. I had some great tools and ideas for how to do things differently. Once I set up the company and hired an office manager, the next step was to expand. I was approached by a friend of my daughter.

She was interested in real estate and the analytics and wanted me to train her as an appraiser. I remembered how hard it had been for me to enter the

profession, so I agreed. My husband had retired after 30 years with IBM, so he became a certified appraiser working with me in a tech support role. We had a great time working together and I continued to train new appraisers. I have always encouraged the trainees to join the Appraisal Institute and to take classes beyond what is required so they can continue learning new things. Extra tools in the toolbox, as they say.

Building your own company isn’t easy—I realized I needed more credentials, so I joined the Appraisal Institute and started meeting people while I worked on my SRA designation. Once I achieved that, I felt more confident, but I needed some more seasoned people to join our team to provide experience and help us keep up with the demand.

Using some of my tech background, I had worked out a process where we could not only use our tablets while out in the field at an inspection, but we could all work from our homes, including the admin role. I also developed integrated spreadsheets for easier, faster data manipulation. I started sharing the process with the appraisers that I knew.

People are generally excited when you show them that they can save time and be more productive, making their jobs easier. My team expanded and continues to expand. I also found that it is a great fit when you can move your office manager into a trainee position. They come to the table with all that background knowledge about the process and the software. They do really well as appraisers.

Q: Your business comprises of mostly women. How did that come to be? Was it always your intention to make a female dominated appraisal business?

Walsh: It really just evolved to what it is today. Most of us are connected in some way, whether through our social networks or through the Appraisal Institute. I think being a woman-owned

business is attractive to other women.

We are good at communicating, we support each other and share knowledge (including the stories). The women on my team have similar qualities, they are accomplished professionals, and really nice people. I think men can have a hard time with a woman in a leadership role. I am open to men joining the team, it just hasn’t happened.

We have a really good dynamic on our team. What you often find in the appraising industry is that there’s sort of a guarded independence, with very little communication between appraisers. This is also what makes it a challenge to enter the industry, with seasoned appraisers often being resistant to sharing their knowledge or taking on a trainee. We collaborate a lot on our team. If I, or anyone on the team, is working on a challenge with a report, we have several people available who have different experiences and backgrounds that are willing to share and help. It makes working through challenges easier when you have someone to compare notes with and get insight from. We’re just a different kind of appraising company, that happens to be all women.

Q: We’ve been talking about the appraisal industry being such a male dominated field. Why do you think that is? What are some of the barriers in the appraisal industry that women have to face that maybe men don’t have to?

Walsh: There has been an “old boys” network in this profession, and it was difficult to get into the field at first, but I think that is changing as younger people move up. In my experience, you need to put yourself out there and get involved. Join an organization like The Appraisal Institute, or The Appraisers’ Coalition of Washington and let people get to know who you are. Once people knew I was involved [in the profession], that’s when things

started to take a turn for me. My first volunteer position with The Appraisal Institute was hospitality, and I ended up teaching a technology class for the Fall Conference, that’s a lot of visibility. Belonging to The Appraisal Institute helped me expand not only my client base but I have gained so many friends. I have served 3 terms as a Director for the Seattle Chapter and am currently the Treasurer for the The Appraisers’ Coalition of Washington.

There are opportunities available if you take those steps to show up and speak up.

Q: On the topic of “showing up,” why do you think there’s a lack of female appraisers?

Walsh: I don’t think we have successfully marketed the profession to women.

There are so many women who are very educated and even over-qualified. They are often “stay-at-home moms” that need a position with a great deal of flexibility. Often, they can work with minimal income and get through those lean trainee years. Being an appraiser is a perfect career for these women.

You can work as much or as little as you need to. You can schedule around family activities and achieve that work/ life balance. Women bring a great deal to the appraisal profession. They have been running a home and usually have already been involved with real estate, so they know a bit about the market and the process. I also think we have a slightly different perspective and insight when it comes to homes. If we could get the word out to women who need a part time or second career, I think we would have greater success in attracting them to the profession.

It is up to us as women to promote other women, like what you are doing today with this interview. One of the appraisers on my team has over three decades of experience and was the President of the Seattle Chapter page 40 8

Summer 2023 Working RE 37

Industry NEWS NY Bill has Appraisers Worried

by Kendra Budd, Editor

The New York State Senate’s Finance

Committee has introduced a Bill that, if passed, would fine appraisers for unlawfully “undervaluing a home” on the basis of discrimination. This Bill has set off alarm bells for many appraisers who are concerned about being accused of racial discrimination every time their appraised value doesn’t meet the homeowners’ or the lenders’ expectations. According to the New York State Senate’s website, Bill S2919 aims to “address appraisal discrimination by imposing a fine for violation for state and federal fair housing policies and laws, and having those fines allocated to the anti-discrimination in housing fund.” Meaning any appraiser that is found liable for unfairly undervaluing a home can be fined up to $2,000 per violation. As of May 9th, 2023, the Bill has been moved forward with 15 committee members voting “aye” and only two “naye.” It is now set to move to the Senate floor, where it will be presented and voted on. Appraisers are worried that, if passed, this law will threaten their credibility and make it easier for false accusations to be filed against them. Some appraisers have even gone as far as calling it a “bounty hunter” law. Many appraisers fear that the definition of “discrimination” is too lax and unhappy homeowners will incriminate an appraiser for not coming it at the value the homeowner or the buyer needs or wants. On the other hand, if an appraiser overvalues the home due to the fear of being accused of discrimination, then they would be in violation of USPAP—trapping them in a lose-lose situation. It is unclear at this time whether or not this Bill will pass on the New York State Senate floor, or what changes may still be made to it. This is a developing story, so subscribe to WorkingRE.com to stay up-to-date on the latest news in the appraisal profession. WRE

California Discrimination Lawsuit Settles A settlement has officially been reached with Janette Miller, the appraiser in a widely publicized lawsuit accused of racial bias in a Marin County home appraisal.

In December of 2021 the federal lawsuit was brought by homeowners Tenisha and Paul Tate-Austin, who made headlines after complaining that their house was undervalued because of the color of their skin. The Austins came to this conclusion after ordering a second appraisal in which they “white-washed” their home and had their white friend show it to the second appraiser— who appraised the property nearly $500,000 higher than the first appraiser. Terms of the agreement with Janette Miller is confidential, and is likely to stay that way. “The crux of this case has much more to do with the indignity of what they believe to be a racially biased appraisal rather than the monetary damages,” Julia Howard-Gibbon, an attorney for Fair Housing Advocates of Northern California, who represented the Austins, told NPR. “We’re glad that we can put this lawsuit behind us,” Paul Austin said in the same statement. “Having to experience everything that came with receiving the lowballed appraisal was overwhelming. Being able to tell our story and knowing we had legal recourse helped. We want others to know that if you experience discrimination, you can go to your local fair housing agency so they can investigate your case and help you if you want to file a complaint.” WRE

Appraisal Institute May Elect First Black Vice President Byron Miller, SRA, AI-RRS, ASA, RAA, MSSE (see Grassroots Lobbying 101: How Appraisers Can Effect Change, pg. 14) is currently running for Vice President of the Appraisal Institute, and if elected he will be the first Black Vice President of AI, since the formation of the Appraisal Institute in 1991. Visit https://bit.ly/byronmiller to read his vision for how appraisers can work together to effect change. WRE

38 Working RE Summer 2023

7page 37

of the Appraisal Institute as well as the President of the Appraisers’ Coalition of Washington multiple times. Those are huge achievements that should be recognized and promoted. When she joined our team, we were all excited to learn from her. What a great role model.

Q: What are some of the next steps for you and your business?

Walsh: Well, not only do we do appraisals for individuals and lenders, but we are also now collaborating with other residential and commercial firms.

We recently participated in submitting a proposal as a subcontractor with a local commercial firm, and were selected by the City of Seattle’s Department of Transportation for on-call appraisal services. We won the business, in part, due to our woman-owned status. Through this relationship, we also secured multiple orders for another city that needed residential appraisals. As lender work softens, we are looking at other avenues of appraising.

We’re working really hard on mar-

keting right now. For a long time, we became pretty complacent because we had so much more business before this slowdown, and we really didn’t need to market ourselves. I was lucky that my office manager has a background in marketing, so I’ve transitioned her over to lead that effort and brought somebody else onto the team to handle operations. We’ve rebranded and updated all our materials. We increased our social media presence and are gaining additional private appraisal work as we become more visible. The next step is updating our website.

By participating in leadership positions in the appraiser community, we maintain access to the newest information available regarding updates and changes to requirements; we also leverage these organizations as a great resource for networking with other appraisers and firms. I have been lucky to make some really good friends in both.

Q: Is there anything else you would like our readers to know about you

or your business?

Walsh: The profession as a whole is struggling to attract new appraisers.

The PAREA program is a new way of educating appraisers and hopefully will be successful. In the meantime, appraisers and appraisal firms need to look at the trainee situation as a really great opportunity. There are some incredibly smart people out there, but there’s a problem with trainees and their prospective supervisors. People who have experience have the perception that trainees will take their business away once they’re trained, while trainees approach potential mentors saying, “I just need hours, just give me hours and then I will go.” This is a problem. From a supervisor’s point of view, I’m going to invest a huge amount of time and money in your growth. I’m going to give you all the tools and procedures that I’ve developed, and help you to be a successful appraiser, so stay with me and be part of our team. It is a give and take. We can make each other successful when we come together. WRE

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